German Economists Favour Tax Cuts

11/05/2017 | ifo Institute - ifo Center for Public Finance and Political Economy

The vast majority of German economists favours tax cuts for middle-income earners, according to the results of the latest Economists Panel. They also call for a reduction in the so-called middle-class bulge.

The vast majority of German economists favours tax cuts for middle-income earners, according to the results of the latest Economists Panel.

60 percent of panel participants described the burden on middle-income households as “too high.” Around 61 percent also think that taxpayers across the board should pay lower taxes. Only one in four panel participants does not see any need for reform. Around a third of the economists surveyed supports a reduction of between 20 and 30 billion euros, while a quarter favours tax cuts of between 10 and 20 billion euros. “An income tax reform focused on unburdening middle income earners in particular would be a good idea. Whether and how such a reform would be financed is an issue that calls for further debate.” Around 110 economics professors participated in the Economists Panel jointly conducted by ifo and the Frankfurter Allgemeine Zeitung.

Three quarters of the economists surveyed want to introduce a “rolling rate” that is adjusted according to inflation. This would put an end to bracket creep, whereby taxpayers with income increases below or up to the inflation rate gradually slip into higher tax brackets, despite the fact that their purchasing power does not rise.

German economics professors also call for a reduction in the so-called middle-class bulge. This term refers to the disproportionate tax burden on middle earners thanks to a pronounced kink in the tax rate curve. Two thirds of the economists surveyed favours maintaining the existing flat tax rate on capital income, while the vast majority supports a complete elimination of the so-called solidarity surcharge on income tax. 43 percent calls for the surcharge to be abolished in one go and does not wish to see any replacement tax. 18 percent, by contrast, would like the surcharge to be steadily phased out by 2030.